from Sputnik News:
The internalization of China’s yuan is gaining momentum as Russia is set to use the currency in settlements with other world economies, while Brazil and China are ditching the dollar in bilateral trade. What does the trend spell for the greenback’s dominance?
“This trend greatly affects the US dollar[‘s] hegemony negatively, in both foreign trade and financial market transactions, since an increasing share of them is not denominated in US dollars but in other currencies, notably in yuan,” Sergio Rossi, professor of macroeconomics and monetary economics at the University of Fribourg, Switzerland, told Sputnik. “
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This weakens the US position with respect to global financial activities, as well as in regard to the influence of US economic policy decisions – particularly the US Federal Reserve’s monetary policy stance – across the global economy.”
“Asian countries, and in part also African countries, depend less on the US dollar than was the case in the recent past. The US economy is, therefore, in a much weaker position than used to be the case with regard to the US public deficit and the possibility to finance it through the purchase of US government bonds by foreign countries’ financial institutions – such as the People’s Bank of China. The US is thereby losing its ‘soft power’ across the global economy and financial markets, as it is clear that the world is becoming multipolar, which rebalances this ‘soft power’ with, among other things, some sort of a multicurrency international monetary regime,” Rossi continued.
Steady Erosion of Dollar Dominance
According to the International Monetary Fund (IMF), the share of US-dollar-denominated foreign exchange reserves stood at 59.8%, as of Q3 2022, down from 72% in 1999. International players are continuing to switch from the greenback to other currencies for their reserves, overseas trade, and banking services.
For instance, Moscow not only adopted the yuan – also referred to as renminbi – as a reserve currency, but also pledged to use the Chinese means of payment “between Russia and countries of Asia, Africa, and Latin America.” China and Brazil have struck an agreement to carry out trade and financial transactions directly, exchanging yuan for reals.
The yuan also appears to be ready to dethrone the petrodollar: last year, Beijing called on Gulf leaders to settle their gas and oil deals with China in yuan. The US and China remain the world’s top two consumers of crude, using 18.7 million and 15.4 million barrels per day, respectively. Energy settlements in yuan are likely to deal a heavy blow to the greenback.
